Inside the Market’s roundup of some of today’s key analyst actions
RBC Dominion Securities analyst Michael Harvey sees Whitecap Resources Inc.’s (WCP-T) merger with Veren Inc. (VRN-T) in a $15-billion deal creating “a new heavyweight” in Canada’s energy sector.
“‘New’ Whitecap features a roughly $13 billion (EV) entity with 370,000 boe/d [barrels of oil equivalent per day] of production and 2.3bn boe of reserves, focused within Alberta’s Montney and Duvernay developments,” he said. “The transaction makes sense in our minds, boosting critical mass within similar asset bases, plus harvesting the benefits of combined synergies.”
While acknowledging the deal was announced “amid a difficult tape” with Whitecap shares dropped 14.6 per cent on Monday, Mr. Harvey said the transaction “makes sense” for the and “creates a larger, more resilient company with enhanced operational efficiencies and financial strength, in our view.”
“Additionally, added size should allow for increased awareness amongst global institutional investors,” he said in a research note.
“The combined asset base will be 63-per-cent liquids and focused within the Montney, Duvernay (220,000 boe/d in total), and Saskatchewan (120,000 boe/d) - 4,800 locations within the Montney and Duvernay have been identified. $200 million in synergies have been targeted based on a first look as a result of the companies’ overlapping asset bases. The combined asset base features a base decline rate of 26 per cent which is fairly low amid the sector, and should support continued value creation and lower maintenance capital.”
Mr. Harvey trimmed his target for Veren shares to $9.75 from $10 with an “outperform” rating. The average target on the Street is $11.19, according to LSEG data.
“Incentives for the transaction include reaching a critical mass that is desirable in public markets, further expanding the combined entity’s shareholder base and market following. This is expected to drive multiple expansion that is more aligned with large-cap peers,” he noted.
His target for Whitecap shares remains $14, exceeding the $13.54 average, also with an “outperform” recommendation.
Elsewhere, other analysts making changes include:
* Raymond James’ Luke Davis upgraded Whitecap to “outperform” from “market perform” with a $13 target (unchanged) and moved Veren to “under review” from “strong buy” and removed his target (previously $12)
“In true blockbuster fashion, what has seemed like a logical transaction for a number of years has come to fruition, with Whitecap Resources (WCP-TSX) and Veren (VRN-TSX) merging to create the 7th largest Canadian oil & gas producer. In our view, the combined company will be positioned exceptionally well with Whitecap’s best-in-class management team poised to improve operational performance and capture synergies across the value chain. While there may be some capitulation as the deal is digested, we think this ultimately positions the company among Canadian large cap peers, which we believe sets out a clear path to sustainable multiple expansion. We have upgraded Whitecap shares to Outperform with our $13/share target price unchanged,” said Mr. Davis.
* Desjardins Securities analyst Chris MacCulloch moved Veren to a “tender” rating from “buy” with a $12.60 target, up from $11. His target for Whitecap slid to $12 from $13 with a “buy” rating (unchanged).
“In our view, the deal represents fair value for VRN shareholders and we believe the likelihood of a competing bid is relatively low,” said Mr. MacCulloch. “We also view the all-stock nature of the transaction as appealing for VRN shareholders as it allows them to retain exposure to the assets through a larger entity that can leverage scale to crystallize operational, financial and tax synergies stemming from the deal.”
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TD Cowen analyst Derick Ma lowered his recommendation for Franco-Nevada Corp. (FNV-N, FNV-T) to “hold” from “buy” previously, seeing its valuation already largely pricing in the restart of its Cobre Panama mine.
“Furthermore, we note there is risk that a potential mine restart could be take longer than expected, FNV’s stream could negatively be impacted by the negotiations and macro uncertainties could lead to headwinds for Energy and Iron Ore,” he said.
Mr. Ma said TD is now modelling a potential restart for the copper mine in Panama, which was placed in a preservation phase in 2023, next year, but he warned negotiations won’t be smooth.
“Recent commentary from President Mulino regarding the mine and public sentiment have recently been trending more positive, in our view,” he said. “However, there has also been limited progress made towards the approval of the Preservation & Safe Management Plan, the third-party environmental audit and the commencement of formal negotiations.
“We note that there is a risk that the negotiations and a mine restart could take longer than anticipated by TD Cowen or the broader market. Furthermore, there is also a risk that the mine could be shut indefinitely if terms are not reached.”
He also emphasized Cobre Panama “could look different economically upon restart.”
“In our view, there is a wide range of potential outcomes which could result from First Quantum and the government of Panama’s pending negotiations,” said Mr. Ma. “These potential outcomes include but are not limited to changes to the mine’s operating perimeters, ownership structure, and/or economic interest in the mine. These potential changes could have direct (or indirect) negative impacts FNV’s stream interest, in our view.”
The analyst maintained a US$152 target for Franco-Nevada shares. The average is US$152.69.
Elsewhere, others making changes include:
* Scotia’s Tanya Jakusconek to US$150 from US$145 with a “sector perform” rating.
“2025 focus is on: (1) Cobre-Panama (19 per cent of our asset NAV) mine and making progress with FM and Government of Panama on a potential restart of the operation (including the sale of concentrate on site); (2) achieving FNV’s 2025 outlook (stronger 2H/25 expected); and (3) executing transaction opportunities,” she said. “Though precious metals opportunities remain the top priority, the company is also looking at non-precious metals transactions. The company has $2.5-billion in available total liquidity for transaction opportunities. FNV currently forecasts 5-per-cent GEO growth over the next 5 years (2025 to 2029, excluding Cobre-Panama) or 8-per-cent growth to 2028 (GEO production peaking in 2028) based on mid-point of its guidance range and no contribution from Cobre Panama. We expect the company to be active in precious metals to help support its growth profile.”
* Raymond James’ Brian MacArthur to US$162 from US$160 with an “outperform” rating.
“FNV is a diversified royalty/streaming company with quality assets, strong free cash flows, and longer-term growth. It also has a strong balance sheet to finance potential future deals and support its dividend, which has increased every year,” he said.
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GFL Environmental Inc.’s (GFL-T) sale of its Environmental Services segment to Apollo Funds and BC Partners last week for an $8-billion enterprise value helps it to both delever and improve free cash flow conversion, according to National Bank Financial analyst Rupert Merer.
“Proceeds from the ES sale should be used to repay up to $3.75-billion of debt in Q1′25E, which lowers its 2026E leverage ratio to approximately 3.0 times (was 4.1 times in Q4),” he said. “The remaining proceeds should be used for up to $2.25-billlion in share repurchases (we model 34.3 milllion reduction in shares outstanding) and general corporate purposes (or likely growth). During its recent Investor Day, GFL updated plans to restart its M&A program, which should be funded primarily with internal equity from improved FCF conversion. FCF conversion is set to improve immediately by 1,000 basis points, with debt reduction driving an $200-million per year reduction in cash interest and EBITDA margin expansion from shedding its lower-margin segment. Long-term, GFL emphasizes several self-help initiatives to further enhance FCF conversion.”
In a report released Tuesday, Mr. Merer updated his forecast for the Canadian waste management giant to account for the close of the ES sale as well as its fourth-quarter results and full-year guidance. His estimates are slightly above management’s expectations as he models for more M&A activity and a lower Canadian dollar, emphasizing GFL’s “recession-resistant model shields [it from] macro volatility.”
“While GFL’s business model is not recession-proof, it is recession-resistant,” he said. “Its collection services business generates recurring revenue, with 24 per cent coming from residential collection, which is less volume-dependent and more recession-resistant than segments like transfer and landfill operations. The company highlights very minimal tariff exposure, with the ability to quickly pass any higher costs through price increases (as previously exemplified with its surcharge initiative).”
With the changes to his forecast, Mr. Merer increased his target for GFL’s TSX-listed shares to $75 from $70. The average target on the Street is $69.23.
“With a clear path for deleveraging, FCF conversion, and growth following the sale of its ES segment and the outlook shared on its Investor Day, we are maintaining our Outperform rating and raising our target price,” he explained.
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National Bank Financial analyst Adam Shine is expecting BCE Inc. (BCE-T) to cut its dividend by 50 per cent by the end of the current fiscal year with its recently announced dividend reinvestment plan discount eliminated.
“Talk persists on when, not if, BCE will cut its dividend,” he said. “Some thought this might happen last month with 4Q24 reporting and 2025 guidance, but that was premature after it was signaled in early November that the dividend would be stable in 2025. There are those that believe the cut will come with 1Q25 reporting. This seems close to 4Q24 and not so far removed from November. What would the excuse be for the board? Could the trigger be closing the MLSE sale (possibly this summer) or better still the Ziply buy (expected in fall)? Will the cut come in period of announcement, or could it come with 2Q or 3Q reporting as a telegraphing of what the dividend will be in 2026?
“We think the cut comes with or before 4Q25 reporting, with earliest announcement more likely in 2H than 1H. As to size of cut, a pruning of 25 per cent seems half-baked, while a 50-per-cent contraction appears more prudent as it would return the dividend yield closer to historical levels, eliminate follow-on talk of more cutting, and position dividend for renewed growth ahead. We’d expect the new 2-per-cent DRIP discount to be eliminated at the same time as a 50-per-cent dividend cut.”
In a research note released Tuesday, Mr. Shine adjusted his forecast for the Canadian telecom giant to reflect its recent US$2.25-billion hybrid issuance as well as the assumption that “post-2025 (if not sooner) the dividend gets halved and DRIP discount is eliminated.”
“Bell announced on Feb. 12 the offering of US$2.25-billion of fixed-to-fixed rate junior subordinated notes in two series,” he explained. “The US$1-billion Series A notes due 2055 will initially bear interest at 6.875 per cent and reset every 5 years starting on 9/15/30 at an annual rate equal to 5-year U.S Treasury rate plus spread of 2.39 per cent (can’t reset below 6.875 per cent). The US$1.25B Series B notes due 2055 will bear interest initially at 7.0 per cent and reset every 5 years starting on 9/15/35 at an annual rate equal to 5-year U.S Treasury rate plus spread of 2.363 per cent (can’t reset below 7.0 per cent). It’s not yet clear if the hybrids have been fully swapped to CAD, but once done the effective rates could be 5.30 per cent and 5.72 per cent, respectively, for a blended rate of around 5.50 per cent.”
Reiterating a “sector perform” recommendation for BCE shares, Mr. Shine raised his target by $1 to $36. The average target on the Street is $35.27.
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Following in-line fourth-quarter 2024 financial results, Desjardins Securities analyst Kyle Stanley sees “a healthy growth opportunity” for Nexus Industrial REIT (NXR.UN-T) despite tariff-driven trade uncertainty.
“[Funds from operations per unit] increased 7 per cent year-over-year, representing an earnings growth inflection point,” he said. “Unfortunately, the benefits of a successful early lease renewal are likely to be muted by ongoing tariff concerns and some tenant insolvencies.”
“Trade uncertainty appears to be weighing on leasing activity across the portfolio; however, management indicated that with 85 per cent of its tenants exposed to Canadian distribution/3PL, the direct impact of cross-border trade could be limited despite its portfolio geography.”
Mr. Stanley said Monday’s earnings release include operating results that largely met expectations with “the variances of note included slightly lower-than-expected NOI, offset by some non-recurring disposition-related adjustments.”
“Industrial SP NOI [same-property net operating income] growth was 5.1 per cent in 4Q, with the Savage Road facility a primary contributor of the growth,” he said. “For 2025, management has guided to similar midsingle-digit industrial SP NOI growth. Post year-end, two tenants entered CCAA. The most significant is Peavey Mart, a tenant at two assets within the portfolio (London and Red Deer) encompassing more than 400,000sf of GLA ($2.5-million of annual net rent). The inplace rental rate in London sits well below market; therefore, limited progress on the releasing effort is required before replacing lost income. The vacancy in Red Deer could be difficult to replace given the size relative to the market. NXR has successfully renewed ~65% of its 2025 lease maturities at a 32-per-cent uplift. Moreover, it is finalizing an early renewal on its largest 2025 maturity (~260,000sf in London), which will take rent from the mid-C$4/sf range to more than C$12/sf. Our 2025 SP NOI outlook is largely unchanged at 5 per cent.”
While emphasizing the uncertainty surrounding the impact of a potential trade war, Mr. Stanley sees NXR “generating a healthy 8-per-cent two-year FFOPU CAGR [compound annual growth rate] and offering an attractive 8.9-per-cent yield.”
Maintaining a “buy” rating, he trimmed his target to $8.75 from $9.50. The average is $8.81.
Elsewhere, other changes include:
* RBC’s Jimmy Shan to $8.75 from $9 with a “sector perform” rating.
“Nexus Industrial reported FFO/unit (normalized) of $0.19, up 6.7 per cent year-over-year vs. RBC/Consensus estimates of $0.19/0.19,” he said. “Long WALT (7 years) and high MTM (up 25 per cent) are mitigating what could otherwise have been a more challenging 2025. NXR is guiding to 5-per-cent SP NOI growth for industrial in 2025, driven mostly by positive renewal spreads (2/3 completed), offset by some occupancy slippage from tenant bankruptcies. Not surprisingly, given tariff and economic uncertainty, tenants are delaying decisions. We expect stock, as with peers, to remain pressured given market sentiment and see valuation as relatively fair to peers.”
* Raymond James’ Brad Sturges to $8.50 from $9 with an “outperform” rating.
“The successful execution of its ongoing industrial development and non-core asset disposition programs have successfully transformed Nexus into a pure-play Canadian industrial REIT. As a result, we believe that Nexus has improved in key areas that include its: 1) balance sheet strength following debt repayment, and as illustrated by lower financial leverage metrics; 2) Canadian industrial portfolio quality; and 3) ability to realize greater near-term FD AFFO/unit growth year-over-year,” he said.,
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In other analyst actions:
* CIBC’s Kevin Chiang trimmed his AirBoss of America Corp. (BOS-T) target to $4.75 from $5 with a “neutral” rating, while National Bank’s Ahmed Abdullah lowered his target to $5 from $5.75 with a “sector perform” recommendation. The average is $5.63.
“While BOS operates in both Canada and the U.S. with goods crossing the border, our key takeaway post Q4 earnings is that the company has flexibility to adjust its operations to manage through this period of heightened tariff risks. It can shift production between facilities and it has positioned inventory into the U.S. We have made modest adjustments to our model,” said Mr. Chiang.
* Canaccord Genuity’s Kingsley Crane raised his BlackBerry Ltd. (BB-N, BB-T) target to US$4.75 from US$3 with a “hold” rating. The average is US$4.54.
* Believing “risks are abating,” National Bank’s Giuliano Thornhill bumped his target for units of Northwest Healthcare Properties REIT (NWH.UN-T) to $5.75 from $5.50 with an “outperform” rating. The average is $5.70.
“Q4 results featured a few notable developments for NWH,” said Mr. Thornhill. “First and foremost, a CEO announcement was not made alongside the release, however Craig Mitchell did indicate he remains on track to step down late-Q2. We expect an announcement could be a key catalyst given heightened c-suite turnover. Concerns relating to Healthscope, while realized after NWH provided a 10-week rent deferral, appear insulated thanks to favourable lease agreements. Overall, this could’ve been a worse outcome for its key tenant. Lastly, with additional proceeds coming in from Assura and thanks to its recent debenture issuance, NWH has avoided transacting on harder to sell geographies at a high cap rate for the time being. Despite HSO concerns, given its long-dated WALT and an insulated tenant profile, steady operational performance should persist. We expect this to occur in contrast to concerns of an economic slowdown impacting other real estate asset classes, which over time should restore units to our view of fair value, while providing a 7.8-per-cent yield.”
* Following weaker-than-expected quarterly results, Raymond James’ Stephen Boland dropped his Pollard Banknote Ltd. (PBL-T) to $39 from $46 with an “outperform” rating. The average is $40.75.
“Management continues to downplay any impact from tariffs with its long-established manufacturing facilities in both Canada and the U.S.. Overall, management expects 2025 instant sales volumes to remain similar to 2024. There is solid demand for charitable games and digital content. The majority of contracts have been repriced which should benefit the gross margin in 2025,” he said.
* Peel Hunt’s Alex Gorman raised her Wheaton Precious Metals Corp. (WPM-T) target to $110 from $95 with a “buy” rating. The average is $106.32.